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Retail Credit Portfolio Selection and Loss Given Default Models

Article Quant Q&A · Author: Moonwalker
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Summary

The document concerns choosing which retail credit portfolios to retain or sell when only aggregate portfolio information is available and borrower-level records are not. Its response points toward loss given default (LGD) modeling as a relevant area of retail credit risk management and recommends a book on credit risk management for further study.

The answer offers a direction for research rather than a portfolio-selection procedure. It does not describe how to estimate LGD from aggregate data, compare portfolios, value a sale, or account for uncertainty and concentration risk. The cited reference is described as covering retail credit risk management and related models, but the document provides no empirical results, model specifications, or worked examples. Readers should treat it as an introductory pointer, not as evidence that LGD models alone determine which portfolios to keep or sell.

Key ideas

  • The question concerns retaining or selling retail credit portfolios using aggregate information.
  • The response identifies loss given default modeling as a relevant topic in retail credit risk management.
  • A credit risk management book is suggested as a source for deeper study.
  • The document gives a research pointer, not a method for ranking or valuing portfolios.

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Fixed incomeRisk managementPortfolio constructionStatistics
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# What are recent important papers on credit portfolio risk modeling?


# What are recent important papers on credit portfolio risk modeling?












I'm interested in papers which consider mathematical models of risks of different portfolios of retail credit. This is not my area of research, so I may be misusing some terms. The idea is simple: I have different sets of credit portfolios with aggregate information known (no personal level detail of each borrower) and want to decide which portfolios to keep and which to sell.

## Answer by Quantopik (score 1, accepted)

https://quant.stackexchange.com/a/17492

The retail credit risk management is generally based on models that try to discriminate between good (people that probably will be able to pay back the debt) and bad customers (people that probably will not).

Particularly, as the question explicitly asks for, you want to some references to allow to decide which customers, already acquired, to keep and which not keep in portfolio; this field in retail risk management refers to LGD (loss given default) models and you should focus your studies in this kind of model to deepen the field (try to google "LGD model", to look something for).

As regards you questions particularly, I suggest you to read:

> Anolli, M., Beccalli, E., Giordani, T., 2013, Credit Risk Management, Palgrave Macmillan (Studies in Banking and Financial Institutions)

It is a good recent book about retail credit risk management and examine pretty in depth the models you need for.

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